E-magazine: Spotlight on Brazil (HK)

In this issue

MANAGING RISK ON LAND AND SEA Page 8 SEEING THE WOOD FOR THE TREES

Page 10 ROUNDING THE HORN

Page 12

SPOTLIGHT ON BRAZIL A collection of articles to commemorate Robeco’s sponsorship of the Volvo Ocean Race APR 2015

CONTENTS 3 Foreword 4 No Plan B for the Brazilian economy 6 Using quant strategies in emerging markets 8 Managing risk on land and sea 10 Fibria does see the wood for the trees 12 Rounding the Horn 15 Beyond BRICs 16 Contact

For professional investors 4-11 October

Alicante

14-15 March

Auckland

14-17 June

Lorient

15-19 November

Cape Town

18-19 April

ItajaĂ­

19 June

The Hague (Pit Stop)

2-3 January

Abu Dhabi

16-17 May

Newport

27 June

Gothenburg

6-7 June

Lisbon

7-8 February Sanya 2|

FOREWORD Competitors in the Volvo Ocean Race have navigated the longest and most difficult leg of the whole race as we now welcome them into Brazil.

The fifth leg sailing across the Southern Ocean from Auckland, around the legendary Cape Horn and north to Itajai, was filled with thrills and spills.

Thrills, because the route is embedded in sailing folklore as the equivalent of climbing Mount Everest. And spills, because the roughest seas in the world threw up 30-meter waves and treacherous currents, breaking the mast of one of the boats.

And now, seven months after the race start in Spain, our sponsored boat, Team Brunel, and its competitors are tackling the final legs, up to America and then across to the finish in Europe.

There is a still a great deal of excitement to look forward to.

To commemorate the Itajai stopover, we are pleased to publish our sixth magazine, focusing on Brazil, Latin America and the BRICs, as well as some stories directly from the brave crew of Team Brunel. In this edition we feature a double interview with Monique Donders, head of risk management at Robeco, and Bouwe Bekking, the Team Brunel captain, on how they cut risks while navigating choppy waters.

Brazil is an amazing country, though investing in it and the wider Latin American region is not without their own risks. Brazilian Daniela da CostaBulthuis of the Robeco emerging markets equity team tells how her homeland is trying to get the economy back on track. And team head WimHein Pals explains how going ‘beyond the BRICs’ offers excellent opportunities in Latin America and elsewhere.

For our focus on quantitative investing, Wilma de Groot explains how the Quant Emerging Markets fund offers a superior alternative to passive investing. And for our regular look at sustainability investing, portfolio manager Fabiana Fedeli reveals how the Brazilian group Fibria has redefined forestry conservation.

Finally, in our latest race report, three Team Brunel crew members share their thoughts on Rounding the Horn for the first time, with some fascinating background on the rocky outcrop at the ‘end of the world’ that inspires so much awe among sailors.

We hope you enjoy our magazine and will continue to follow the race with us.

Roderick Munsters Chief Executive Officer Robeco

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NO PLAN B FOR THE BRAZILIAN ECONOMY Daniela da Costa-Bulthuis The Brazilian economy is in dire straits. However, if the government moves forward with fiscal austerity, the economic and political crisis can be overcome, thinks portfolio manager Daniela da Costa-Bulthuis. Crumbling political support could certainly still throw a spanner in the works though.

For a long time Brazil was a success story within the group of emerging economies. High economic growth was accompanied by declining poverty and less income disparity. The country developed into the world’s seventh largest economy and featured prominently in the BRIC grouping (Brazil, Russia, India and China): large countries with rapid economic growth.

she says. “These structural weaknesses were camouflaged during the commodity boom. But now they are impacting growth and, in addition, there are immediate problems that need to be addressed. Pursuing the wrong policies has led to increases in government debt – which now accounts for over 60% of GDP. And the debt ratio may rise further if the budget deficit is not curbed.”

Economy can still recover

But after 2010 the growth slowed. Excessive government interference in the economy, low investment levels and falling commodity prices started to affect the Brazilian economy. Recently the country slipped into recession. And, despite efforts by the central bank, inflation now stands at 7.7% – the highest level since 2005.

But it’s not all gloom and doom. Da Costa-Bulthuis highlights the strong aspects of the Brazilian economy such as its diversified nature and the deeply rooted democracy. She is also positive about the new Minister of Finance, Joaquim Levy. “He is pursuing a good policy to restore confidence; his measures are orthodox,” she says. “He is cutting government spending and increasing taxes. A problem, however, is that these measures are meeting resistance from the population. There is considerable dissatisfaction with the government because of the economic situation and corruption scandals. The President is not delivering what she promised during the election campaign. Her electorate feels betrayed.”

Da Costa-Bulthuis sees the political crisis as the most significant risk factor for a more positive scenario. “If Brazil overcomes this difficult period, the economy can recover next year. But the situation is fragile, she says. “The fraud scandal at oil company Petrobras is detrimental for the government. Let’s hope Rousseff doesn’t give in to the pressure and leaves Levy to get on with his job.

There is no plan B – the government has to deal with the situation as it is.”

Structural weaknesses As a portfolio manager who invests in stocks in emerging markets, Daniela da Costa-Bulthuis is closely following developments in her country of birth. “A poorly functioning tax system, bureaucracy coupled with corruption and an inflexible employment market are putting a brake on corporate investment and limiting productivity,”

During last the election campaign, President Dilma Rousseff warned that if the plans of the neoliberal opposition were implemented, then full employment, higher wages and more generous benefits would all be jeopardized. But now, after her re-election, unemployment is rising and more and more consumers are troubled by high debt.

“The current situation can be compared to a blanket that is too small – pull it up and your feet stick out. But if you want to keep your feet warm, your top half gets cold. Rousseff can’t pander to public opinion and pursue the right policy at the

same time. Short-term visibility is low. Which path will Brazil take?”

‘Rousseff can’t pander to public opinion and pursue the right policy at the same time’ This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

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USING QUANT STRATEGIES IN EMERGING MARKETS Wilma de Groot The growing popularity of passive investing using index trackers has enabled many investors to access emerging markets, of which Brazil is a prominent member, at relatively low cost. However, trackers lack the positive exposure to factors which can identify the most attractive stocks.

One way to get the best of both worlds is to use a quantitative emerging markets strategy that follows the MSCI Emerging Markets Index as the benchmark, says Robeco Portfolio Manager Wilma de Groot. “These strategies take the capitalization-weighted index as a starting point, and then give more weight to stocks with favorable factor characteristics and less weight to stocks with unfavorable ones.”

“These factor premiums are valuation and momentum. There has been a lot of empirical research on these factors. Stocks with a cheap valuation or a low price to fundamentals tend to outperform. Stocks with positive sentiment such as a high price momentum and positive earnings revisions from analysts also tend to outperform.

We go overweight on stocks that score well on these premiums.”

She manages two benchmark-related emerging markets strategies together with Tim Dröge and Michael Strating: Core Quant Emerging Markets (Core) and Active Quant Emerging Markets (Active), which has a more concentrated portfolio. It is just over 15 years since Robeco first discovered that quantitative stock-selection techniques which were known to be effective in developed markets also worked in emerging markets.

De Groot emphasizes the distinctive features and benefits of the two quantitative strategies. “Having quantitative and fundamental strategies under one roof has real benefits for our clients,” she says. “There is close cooperation with the Robeco Emerging Markets Equities team that looks at the fundamentals in these markets.“

Benefit from factor premiums “With our approach, investors can efficiently capture the market return, as is the case with passive investing. But at the same time, they can benefit from established factor premiums,” says De Groot.

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“We apply their knowledge to improve data quality for the stock-selection model and to reduce trading costs. We look at which listing and share class has the best data quality. This can depend on the number of analysts who cover it, for example. For trading purposes, we look for the most liquid share class in order to minimize trading costs.“

Dealing with risk Another feature is the way the Active and Core Emerging Markets strategies deal with risk.

“We adopt an integrated risk management technique,” she says. “We prefer to start incorporating risk management when defining our variables for stock selection, for example, by avoiding traditional momentum strategies which are highly vulnerable to market reversals.

Integrated risk management reduces the most important undesirable time-varying style tilts.”

“The stock selection model is the same, but there is a difference in universe and portfolio limits,” adds De Groot. “Core uses only the constituents of the MSCI Emerging Markets Index to determine its universe. Active can invest in stocks outside this index as long as they are part of other wellknown emerging markets indices. This also means that investments in some frontier markets can be made.”

The way portfolios are constructed is different from other active managers, says De Groot. “We do not use statistical portfolio optimizers which build a portfolio based on the correlations between stocks. These optimizers might distort portfolio characteristics in unpredictable ways.”

“Instead we use a proprietary portfolio construction algorithm that it is fully tailored to our needs.

Our approach uses fixed active stock weights for selecting new stocks and avoids extreme weightings. Because our approach is different from other investors, we also avoid overcrowded trades.”

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

‘We go overweight on stocks that score well, while avoiding stocks that are expected to perform badly’ |7

MANAGING RISK ON LAND AND SEA Monique Donders and Bouwe Bekking Strong risk management is essential for both investing and sailing – and the ways in which it is applied is remarkably similar between Robeco and Team Brunel.

The risks of sailing became plain to see when the start of the fifth leg from Auckland to Itajai was delayed by three days after Cyclone Pam erupted in the Pacific. Fortunately for the sailors, it was spotted in advance. And fortunately for investors, problems that can adversely affect asset values are also normally on the radar as well, says Monique Donders, Head of Risk Management at Robeco.

‘We have a very risk-aware culture, and people are not reluctant to tell us if something happens’ Monique Donders

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Preparing for the worst Donders says risk management may mean preparing for the worst while hoping for the best. “So sometimes we sit down with portfolio managers and think about the worst circumstances that you could imagine for that portfolio at that time. In preparing for the worst we consider whether we could handle that risk, or take mitigating action.”

“The fifth leg was delayed because of the risk, and that’s something we can do with portfolios as well,” she says. “If we see a high concentration of risk in a certain region or industry, and there is reason to expect something bad happening, such as the Ukraine war or the Greek debt crisis, we can reduce exposure to it.”

For Team Brunel skipper Bouwe Bekking, the fifth leg is the most dangerous, even after the cyclone had dissipated. The race participants still face mountainous seas in the Southern Ocean and a danger of crashing into whales or icebergs.

“The difficulty is always whether we think the risk is priced in, or judge whether we can face the downside risk in order to still keep the upside.

Once the downside gets so big that you can’t bear the risk from either a financial or a reputational perspective, you might decide to exit those positions.”

“Whales are the biggest problem, as they sleep at the surface during the hours of darkness,” says Bekking. “A good thing for us is that a lot of whales started their migration to more northerly waters about one month ago, but there will be still plenty around. Hopefully they will wake up if we approach them, as our boat is very noisy when we are sailing at high speeds. I have hit whales several times, and that was always during calmer conditions, but

basically we can’t take any precautions unless we stop sailing at night time. So it is a risk we take.”

He says avoiding icebergs is easier, as the boats are not allowed to sail south of certain ‘ice gates’ – navigational points which are too risky to cross.

“These are based on satellite pictures, but do not guarantee that there are not pieces of ice floating north of these boundaries,” he says. “So we keep a good eye on water temperatures; if a sudden drop appears, it is very likely that there is ice nearby.

It’s a matter of keeping a good lookout.”

Stress testing is essential Crash testing can have its advantages though when conducted safely. Both Robeco and Team Brunel know that extensive research is essential to know that either an investment product or a racing yacht is going to function properly. Robeco has a well-known slogan - “If we can’t prove it, we don’t launch it” - while Team Brunel tested their Volvo Ocean 65 boat to its limits before the race began.

“Before we bring anything to the market, every department that is involved in the operational process must sign off on the design not only of

the product, but of the underlying processes,” says Donders. “This includes risk management, compliance, finance, legal, tax, operations and product development.”

“So if the product is approved, we can run with it.

It’s similar to designing a boat: all the people who will sail in it, or maintain it, will understand what the different parts of the boat are, and what spares it would need before it sails.”

Mistakes can stil happen And mistakes do happen, so having everyone pulling together on the same side can stop costly losses on land and sea. Like other financial institutions, Robeco faces the risk of ‘operational incidents’, such as an incorrect equity order, or errors in calculating fund values. “If an operational incident happens, what we’ve done for 20 years is try to learn from that to prevent it from happening again, rather than just getting over it,” says Donders. “If it is prohibitively expensive to prevent it from happening again, then you can opt to accept this risk, or take it out completely.”

“Throughout Robeco we have well-described procedures and processes detailing how things should be done. We have a very risk-aware culture, and people are not reluctant to tell us if something happens; everyone has a button on their computer to register an incident, and nobody is scared to do so. For someone to put their hand up, it is essential that they know they won’t be hanged in the high street. It requires a culture that accepts a main focus on working together to stop these things happening again.”

Bekking’s operational risks can be more physically painful. The team’s bowman, Gerd-Jan Poortman, suffered a head wound when he was knocked over by a sudden wave on the fourth leg. The sailors are often clipped onto the boat during rough seas, but accidents can still happen, especially when the boat is turning.

“We took it easy on the maneuver, but he clipped onto the wrong spot and got hit by a relatively small wave, and was then out of action for 24 hours,” recalls Bekking. “That was a good reminder for us all: think when and where you clip on; obviously, the bigger the waves, the higher the danger.”

Poortman himself admits he had dropped his guard after many months at sea. “I took a little hit on the last leg, but it’s healed now,” he says. “It reminds me of the dangers: we spend so much time on the boat that it becomes like walking around your house, and you get too used to it, so sometimes you need a little wake-up call.”

Cutting-edge technology One way of reducing risk is by using cuttingedge technology and strategies in building portfolios. Robeco is a pioneer of quantitative and sustainability investing, “What I like very much about quant investing is the models they use help you to think about things very consistently, taking the emotion out,” she says. “You have to take everything into account. The way we use models in risk management uses the outcome of the model as the starting point for the analysis, then we add common sense.”

“The IT component is also very important for monitoring financial risk. We have a lot of portfolios

and different ways of measuring risk, so it’s essential that you have the infrastructure and the tooling right. It’s important to be critical to review the risk types that you face and the methodologies that you employ.”

Team Brunel also uses quant data that feeds high-tech navigational and weather-tracking systems, but things can still go wrong. Bekking says the team paid the price for a risky maneuver taken during the fourth leg in search of stronger winds.

Having led for much of the way south from Sanya, the boat ended up finishing fifth. “Leg 4 was one of those legs when it just did not happen for us,” he says. “We took a too-risky decision. I always say I like to bake small cookies, but instead we went for the big cake.”

“We had done well up until that point, and if you have taken a lot of good decisions, you think you will get all the decisions afterwards right as well.

I should have known better, but still made the mistake. It was an expensive lesson to learn, but this will not happen again.”

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

Bouwe Bekking

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FIBRIA DOES SEE THE WOOD FOR THE TREES Fabiana Fedeli Forestry management has been a contentious issue in Brazil, where vast swathes of the Amazonian rain forest have been cut down over recent decades. One company though is taking a visionary, sustainable approach to one of the world’s most precious resources.

Listed as Gold Class in RobecoSAM’s 2015 Sustainability Yearbook, Brazilian pulp producer Fibria combines innovative technology with extensive dialogue to take care of its clients, investors, the environment and local communities.

“The company is taking sustainability to the next level,” says emerging markets equities portfolio manager Fabiana Fedeli.

Fibria is the world’s largest producer of hardwood eucalyptus pulp, which is used to make paper for personal hygiene, printing and writing. According to its 2013 annual report, the company manages 850,000 hectares of forest, of which a third is dedicated to environmental conservation.

Securing the social license to operate The sustainability challenge in the pulp industry lies in reducing the environmental footprint and ensuring the social inclusion of people affected by the commercial use of forests. Fibria addresses these issues head-on.

Fibria makes it a priority to establish an open dialogue with the communities living near its

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operations. The company talks to them before any operations start that could cause some kind of impact. It interacts with many different stakeholders ranging from employees, and suppliers to customers, governments, NGOs, the media and academia.

The company participates in over 100 forums, such as the Forests Dialogue, the United Nations Global Compact, the National Pact for the Eradication of Slave Labor, the World Wide Fund for Nature and the Water Footprint Network. Fibria’s Sustainability Committee guides its actions and is coordinated by the chairman of the company’s board of directors.

It consists of five external independent members and three members of the Fibria executive board.

Fibria’s pulp comes from 100% planted forests. Its strategy includes a concrete target to reduce the amount of land needed for pulp production by onethird by 2025. To meet this objective, the company aims to maximize the productivity of the planted areas, for example by selecting superior eucalyptus clones and by initiating the ‘P100 project’, involving more intensive management with a greater supply of nutrients and other special care.

Fibria’s eucalyptus plantations and conservation areas absorb a volume of carbon substantially greater than that issued by all the company’s combined operations. Besides that, the company has been researching waste and wood reutilization for the production of biofuels. In 2013, RobecoSAM chose Fibria as one of the 10 Game Changers of tomorrow among all the global industries analyzed for the Dow Jones Sustainability Index.

the corporate agenda, as will companies’ ability to diversify or reinvent their business models to adapt to new market characteristics. Companies that truly recognize this are likely to come out on top.

Good for the world, good for investors “Careful resource management and increasing productivity are not just helping the environment,” says Fedeli. “As these measures lead to higher revenues, they can be appealing to us as investors as well. On the same note, avoiding social conflict reduces reputation risk and risk to the company’s operations. The fact that the company is able to diversify into energy-efficient businesses such as biofuels and introduce new technologies will give it a competitive advantage.”

As paper becomes an increasingly customized product fulfilling client-specific needs, product innovation and customer focus will move up

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

‘Careful resource management is not just helping the environment – it leads to higher revenues’

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ROUNDING THE HORN Team Brunel crew members ‘Rounding the Horn’ is the ultimate in sailing – and three Team Brunel crew members will be notching up this iconic achievement for the first time.

The seas at Cape Horn at the southern tip of South America are notoriously rough: waves of up to 30 meters high are common, whipped up by sudden ‘williwaw’ winds blown down from the Andes mountains which can reach speeds of over 150 kmh.

Like scaling Everest “Cape Horn for every sailor is like a Mount Everest because of its remoteness and harsh environment,” says former Olympian Milevicius, who is the first Lithuanian ever to compete in the race. “It probably means a lot for every sailor, just as scaling Everest would be for every mountain climber.”

Over the centuries, shipwrecks or capsizes have been frequent, and successfully ‘Rounding the Horn’ is seen as the sailing equivalent of climbing Mount Everest. The cape itself – actually a small island - is named after the town of Hoorn in the Netherlands after it was discovered by Dutch sailor Willem Schouten in 1616. It is now part of Chile.

“It has lot of respect from sailing communities from the older days. And for sure, this is the biggest adventure in my life. The Horn is like the tip of the iceberg, the pinnacle of all your efforts, so I’m looking forward to it, and I hope it will be sunny for the pictures!”

Rokas Milevicius and Louis Balcaen are both competing in their first Volvo Ocean Race, joining the Dutch boat under the race rule which states that two crew members must be aged under 30.

Gerd-Jan Poortman is competing in his third race, but has never completed the Cape Horn leg due to accidents. In 2005 he broke his back and was forced to pull out, while in 2008 his boat was damaged en-route to China.

Milevicius says he has learned a great deal since joining the crew at the relatively young age of 28.

“We are inexperienced compared to the captain Bouwe Bekking or the navigator Andrew Cape, and we learn a lot of them,” he says. “We learn how to take hard decisions and later deal with them, how to be patient, and how to look at everything with a clear head. We also learn a lot about seamanship and loads of other stuff outside sailing.”

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Though he is also relatively young, Balcaen already has a reputation as the team’s ‘Action Man’ who is often called on to dive into the water to remove debris that has become stuck to the boat. During the Sanya to Auckland leg, this involved cutting a long poisonous snake free from the keel.

He dives into the water completely naked, save for his swimming mask, requiring discreet editing of YouTube videos to cover over any personal parts that become visible.

it. It is a true enrichment on both personal and professional level.”

Poortman says he hopes it will be ‘third time lucky’ to not only bag the Horn, but also complete the Southern Ocean leg into Brazil. “We still have two weeks of challenging sailing to get to Cape Horn, but this will be the first time I’ve done this leg, so I’m happy about that,” he says. “Certainly when you do three round-the-world races you want to bag this landmark – I only hope I see it!”

‘Anxiety and excitement’ “I’m really looking forward to going round the iconic landmark of Cape Horn: it will be a combination of anxiety and excitement,” says the Belgian sailor. “In the heat of the moment it will probably be just a cape rounding, but afterwards we will realize what a big achievement it is.”

“Completing the whole Volvo Ocean Race is probably more like climbing Mount Everest.

Rounding the Horn is like climbing from the last base camp to the summit; a small part of the bigger picture. And I am loving every minute of

“Louis is going to sort out some cigars if we get round it, plus a small whisky!”

‘Cape Horn for every sailor is like a Mount Everest because of its remoteness and harsh environment’ | 13

VOLVO OCEAN RACE Facts & Figures – This is the 12th edition of the race, and the 5th under the name Volvo Ocean Race – The Netherlands and Sweden (Volvo’s home country) have the strongest history in the race in terms of the number of teams and sailors taking part – 7 teams are in this edition, including the first women’s team (Sweden) in over a decade – Each boat has 8 sailing crew and one on-board reporter – Some 22,000 corporate guests will be invited at stopovers and other hospitality events by sponsors of the race and the teams – The total TV audience is expected to be 1.65 billion people, on a par with the Olympics and World Cup

‘The Andean countries – Peru, Chile and Colombia – as a combination have more to offer than Brazil’

The teams in the race are: – The Netherlands: Team Brunel – Abu Dhabi: Abu Dhabi Ocean Racing – China: Dongfeng Race Team – Sweden: Team SCA (all-female) – America/Turkey: Team Alvimedica – Spain: Team España – Denmark: Team Vestas Wind The other sponsors of Team Brunel are: – Brunel: project management, staff secondment and consultancy – Schouten Global: training and development – Moduleo IVC: premium vinyl flooring – Sub-sponsors: Gaastra (teamwear); Ernst & Young (accountancy)

Machu Picchu in Peru - the first emerging market that Robeco invested in, in 1930.

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BEYOND BRICS Wim-Hein Pals For about a decade many investors believed investing in the four BRIC countries – a concept launched by Goldman Sachs Asset Management – was the easiest way to profit from growth in emerging markets. But times have changed.

Simplification is not always the best approach.

When Jim O’Neill, chief economist at Goldman Sachs AM, coined the term BRIC in 2001, it was quickly embraced by many of the main asset managers worldwide. BRIC funds offered investors a simple way to gain exposure to the equity markets of the four biggest emerging economies Brazil, Russia, India and China. BRIC funds were arguably a commercial success, but the economic tide has now turned against two of these Big Four economies, says Wim-Hein Pals, head of the Robeco Emerging Markets team.

Corruption has hurt growth “Brazil has been a big disappointment for years now. Little that President Dilma Rousseff has done has gone right, and currently the Petrobras’ corruption scandal is taking its toll,” he says.

“The fact that this scandal is now being handled openly is good in the long run, but the country is feeling the pain right now. Economic growth has been subdued for years and Brazil is heading for a recession.”

A growth rate of 5% or 6% per annum, similar to

levels achieved by countries like Indonesia and Turkey, should be possible for Brazil with all its potential, but it has only managed to generate between 1-2% over the last decade. Bad politics, corruption and mismanagement, on both micro and macro levels have had a devastating effect on economic growth Pals adds.

cyclically and structurally positive on India, while China is structurally attractive, although there are some cyclical issues.” India has adopted a pro-business budget and President Modi’s reform program really seems to be taking off. The country is heading for 8 to 8.5% growths this year – more than China’s 7%.

In Russia things are probably worse – for obvious reasons. The country’s economy is bleeding due to economic sanctions and the falling energy prices. “capex spending is decreasing, especially by the oil majors. Consumer spending is weakening and inflation has hit double-digit levels,” says Pals.

The equity market has become extremely cheap though, and if the ‘Minsk Two’ ceasefire holds, sanctions might be lifted this summer, which could trigger a rally in Russian stocks. However, the elimination of Boris Nemtsov, a significant opponent of President Vladimir Putin, has once again shown how tense the political situation in the country is.

Why limit yourself to four countries?

China and India are much better off at the moment, thinks Pals. “We like both countries and are

Robeco was one of the asset managers that did not launch a BRIC fund during its heyday. “We have never understood why investors should limit their emerging markets exposure to only four countries,” Pals explains. And certainly now, there’s still so much value to be found in other growth countries, such as those in Latin America.

“The Andean countries – Peru, Chile and Colombia – as a combination have more to offer than Brazil, for example,” he says. “Peru is still very poor, but could lift off sharply once growth sets in. Colombia might profit from a ‘peace dividend’, when the war with the FARC comes to an end, while Chile has a rich economy thanks to its copper resources.”

However, Pals thinks that Asia is more attractive at the moment. “The ASEAN countries have become very expensive, but we do see huge potential in both Indonesia and South Korea. The first has good demographic dynamics and a new president who is pushing for reform. The latter still has its traditional discount which makes it attractive for investors. In the long run this ‘Korean Discount’ will disappear once corporate governance further improves, dividend payout ratios rise and the growing number of active shareholders force companies to improve their ESG policies.”

So while BRIC no longer offers the winning formula it did in the past, plenty of other emerging countries are ready to take up the baton.

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

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Robeco Coolsingel 120 3011 AG Rotterdam The Netherlands T +31 10 224 1 224 E robeco@robeco.com I www.robeco.com

Important information The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the Securities and Futures Commission in Hong Kong.

Robeco Institutional Asset Management B.V. (trade register number: 24123167), hereafter Robeco, has a license as manager of UCITS and AIF’s of the Netherlands Authority for the Financial Markets in Amsterdam. This publication is intended to provide the professional investor with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products. All rights relating to the information in this presentation are and will remain the property of Robeco.

No part of this presentation may be reproduced, saved in an automated data file or published in any form or by any means, either electronically, mechanically, by photocopy, recording or in any other way, without Robeco’s prior written permission. The information contained in this publication is not intended for users from other countries, such as US citizens and residents, where the offering of foreign financial services is not permitted, or where Robeco’s services are not available.

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